To that end the company is driving other, non-Brexit related initiatives forward too. Much of that includes driving digital improvements such as re-launching the mobile app and moving to a cloud-based system to avoid technology outages in the future. Gaining market share has much to do with active customer acquisition and retention. In the past five years, the compound annual growth rate in customer numbers has settled around 25 per cent and management says the “value” of those customers i.e. the amount they tend to spend, rises every year they stay active on the site.
The fact the Asos growth story is both long-term and well-documented doesn’t sound so worrying when investors listen to management’s forward plans. But ultimately, the market is becoming more saturated and Asos’s position as the incumbent leader can only look more perilous. In terms of investment, the closest listed peer is Boohoo.com (BOO) which only joined the market less than two years ago.
Let’s be frank. Boohoo got life as a public company off to a pretty terrible start. Shares debuted at 50p apiece, rocketed and settled around 63p. That gave the company a sizeable market cap of around £700m and was the sixth most active security on the first morning of trading with online broker TD Direct Investing. But only a matter of months on from the float, the shares plummeted 39 per cent following an unexpected profit warning. This led to months of speculation the management couldn’t be trusted and growth rates were falling short of market expectations. It has been an exercise in regaining investors' trust ever since.
But, finally, Boohoo appears to be back in the game. Its shares have doubled in value year-on-year and results showed the website is still highly popular with under-30s looking for cheap clothes to buy online. Revenues soared by 40 per cent during the year to February as active customers increased by just over a third, following the launch of new mobile and tablet apps in the UK, US and Australia. Margins fell though, by a sizeable 300 basis points, as the group continued to cut prices and offer promotions including cost-heavy next day delivery.
The deflation issue has been a big one for online fashion retailers. Margins have also been squeezed at Asos so bosses there have been forced to keep more items at full price. This has worked, as gross margins recovered by 40 basis points during the first half of the financial year to 47.2 per cent. This, along with a 21 per cent improvement in group revenues, helped the company beat profit forecasts for the same period.
Ultimately the businesses are pretty similar and so investors can assume the currency benefit which Asos intends to exploit should also work for Boohoo. There’s no word on the post-Brexit trading environment from Boohoo yet but we’re going to say both companies appear well-positioned from an international shopper perspective.
Finally, a word on valuations. As ever, it’s never an either or game and we’ve said already that the businesses bear many similarities – both in their structure, target customer and product range. Asos is a bigger business. And it’s got a longer track record for navigating public markets and working with investors. Boohoo is more embryonic, but of course, that often implies further to run in the growth story.
What’s interesting by analysing the relative prices of both shares in the past two years is this. Asos is getting – relatively – cheaper to its historic average while Boohoo’s rating is climbing. That suggests the market is warming to the idea of better growth prospects at the latter. Boohoo shares still trade at roughly an 8 per cent discount compared with the average price of its peers while Asos still trades at a significant premium.
